The debt bombOur national debt has exceeded the 1,000 trillion won ($953.9 billion) mark for the first time. According to the government’s announcement, the figure stood at 1,117 trillion won as of the end of last December, up 215 trillion won from the previous year. Central and local governments must pay back 482.6 trillion won of the debt.
The debt-to-GDP ratio increased to 33.8 percent, up 1.6 percent from a year earlier. That ratio may look better than the OECD average of 107.4 percent, but it’s too early to tell. The speed of the increase is faster than the OECD average when taking into account the government’s liabilities from public corporations and the national pension programs.
To avert a potential default as seen in Greece, the government must first fix the huge amount of debt expected from state-run pensions for civil servants, private school teachers and retired servicemen. Though the size of the debt varies according to the fluctuations of consumer prices, retirement and death rates, the debt will surely grow fast as a result of Korea’s rapidly aging population. The government had to pay 159 trillion won more last year for a total debt of 596.3 trillion won. Despite the government’s explanations that the steep increase resulted from applying calculation standards different from 2012, the situation is not likely to improve given the alarming size and speed of growth of the debt.
The debt from public pension schemes already puts an immediate burden on government coffers as evidenced in the depletion of funds for civil servants and retired officers. Teachers’ pensions will likely go into the red after 20 years. For instance, the government last year had to spend 2 trillion won to compensate for the deficits in pensions for civil servants and servicemen.
President Park Geun-hye vowed to devise ways to improve the three pension programs. The ruling Saenuri Party also promised to set up an organization to reform the pensions. The government must not repeat the self-serving reform in 2009 led by bureaucrats. At the time, the half-baked reforms included a reduction of civil servants’ pensions, which only amounted to half the cut of the entitlements in the national pension program.
Politicians must abstain from offering populist campaign promises such as free lunches at middle schools ahead of the June 4 local elections. Legislators must introduce a bill that would force them to clarify how to secure the funds needed to implement their proposals. The government must consider an introduction of a national debt ceiling as in the United States. We must not pass deficits onto the next generation.
JoongAng Ilbo, April 9, Page 30